Italy and Spain were also among the nine countries to see their ratings lowered by the influential ratings agency. Finland, the Netherlands and Luxembourg kept their AAA ratings, however, they were put on negative watch for a possible future downgrade. In a statement released Friday, Standard & Poor’s said “In our view, the public initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone.”

An open and prolonged dispute among European policy makers, tightening credit, slowing economic growth and rising risk premiums are just some of the reasons why Standard & Poor’s acted.

The downgrade of the credits of many of the euro zone countries came after a week in which the region seemed to be making progress on backing away from the precipice. Borrowing costs had fallen for the region and the European Central Bank said it had prevented a credit crunch by providing funding for European banks. The first gauge of the impact of the downgrades will be known soon as France is set to sell as much as 8.7 billion euros in bills.

Europe’s leaders are still struggling to convince investors that they have the situation under control as the crisis drags on into its third year. This has made the euro zone’s worse case scenario of default and recession loom larger. The ability of the euro zone to backstop its weaker credits just got more expensive since France is the number two backer after Germany of the region’s bailout fund, the European Financial Stability Facility (EFSF).

Europe’s leaders were quick to dismiss the downgrades as no big deal. France’s finance minister, Francois Baroin, said it’s bad news, but far from devastating. “It’s a reduction of one level…the same level as the U.S. It’s not a catastrophe.” Mr. Baroin told France-2 television. Germany’s Angela Merkel said “The decision confirms my conviction that we have a long way ahead of us before investor confidence returns.” She went on to say that resolving the crisis is a “longer process” that will take more than a few months.

And while politicians were quick to dismiss the ratings downgrades they are a big deal. Euro zone countries have borrowed hundreds of billions of euros, much ot it overseas, to finance their debts. Lower ratings are an indicator of greater risk, prompting investors to demand higher interest rates to hold these bonds.

On the news of the downgrades, markets in Europe and North America slumped this past Friday and the euro hit its lowest level in more than a year. The yield on U.S. Treasuries hit 1.85 percent as investors flocked to the safety of U.S. bonds.

Making matters worse for Europe, Greece is once again in the spotlight with a potential default looming. Talks with lenders over the amount of a haircut the investors ought to take broke down.

With Europe once more in the news, look for the U.S. dollar to strengthen, the euro to weaken and markets to remain volatile. Investors looking for a safe place to hide, should consider the safety and stability of large capitalization dividend-paying stocks in the utility, basic food service, pipeline, REIT and consumer staples sectors.

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